Last month, the media reported that Edwards Jones is being sued by a company participating in their 401(k) plan for purportedly making employees pay high fees for investment management and record keeping services. These fees allegedly cost millions in retirement savings.
The intricacies of this case are long and unique and create a bit of a quandary within the financial services market. One of the interesting back stories of the case surrounds how the relationship between Edward Jones and the mutual fund companies might have influenced the choice of 401(k) plans.
The organization has two levels of partnerships, namely partners and preferred partners. It has been reported that when preferred partners are “kept happy” there is a financial benefit for Edward Jones. The suit also alleges that the preferred partners receive millions in revenue sharing payments in return for providing fund managers greater access to information about business practices, additional marketing support and educational presentations, and increased interaction with financial advisors at Edward Jones.
These allegations suggest that because of their relationship, funds from the preferred partners are being included in the Edward Jones employee 401(k) plans. It is also interesting to note that of the 53 separate investment options in the employee 401(k) plans, 40 are managed by an Edward Jones partner or preferred partner. The lawsuit suggests that because of these relationships, the firm profits through revenue sharing arrangements from the product partner.
It will be interesting to see how this lawsuit plays out and what effect it might have on future cases. We believe it could open a floodgate of similar suits and that this is just the tip of the iceberg. The bottom line in all of this is to work with an advisor who follows the fiduciary standard and you won’t run into these situations.